As expected, the Governing Board of the Bank of Mexico made the decision to keep its target rate unchanged, which it remained at 11 percent.
Before announcing its determination, Banxico knew the inflation figures for the month of April, revealed by the INEGI yesterday morning.
The result was an increase of just over two tenths of a percentage point compared to March.
This result has two sides. The first is a growth in the so-called non-core inflation, which reached, at an annual rate, 5.54 percent, which represented the main source of pressure on prices.
The so-called core inflation, which tends to better reflect inflation trends in the medium term, continued to decline.
From February 2023, until April of this year, core inflation has maintained a downward trend, although at a slower pace than many expected.
This trend was not enough to offset the rise in non-core inflation, especially in fruits and vegetables, whose annual increase reached 18.6 percent.
Obviously, the Bank of Mexico does not make its decisions by observing only the price of tomatoes or serrano peppers.
The issue is that There does not seem to be sufficient clarity regarding the fact that “disinflation” go at a pace such as to allow the downward adjustment of rates.
I even think that, if the data for the first half of May are not good, the expectation would be that The next drop will occur until the month of August.
It is not just an issue of Banxico but of various central banks and also has to do with global inflation, which has recently lost its downward trend.
We are in a complex moment, since neither the expectation of lower rates can be maintained, as prevailed a few months ago, nor can it be considered that inflation has not decreased, since the underlying inflation continues its downward trajectory.
But, even if a quarter point adjustment in rates were to come in June, the real level they would probably have at the end of the year would still be very high.
Considering that inflation could be something like 4 percent at the end of 2024 (according to the guide proposed by Banxico), a rate of 10.5 percent (considering two additional adjustments) would imply a real rate of 6.25 percenta very high level for our historical parameters.
This means that the most likely scenario for this year is the permanence of high interest rates for short and medium-term debt instruments.
It is no coincidence that the financial markets have built this scenario after Banxico’s decision.
With this, the bet on relatively high rates in real terms led to the good expectation regarding our currency having placed the dollar yesterday in a minimum of 16.77 pesosthe lowest level since mid-April.
The perspective that is emerging is that we will have high real interest rates both during this year and in the first months of the next.
In general terms, we will continue with good news for savers who have liquidity to invest in public bonds. AND bad for those who continue with high debts.
At the end of this monetary cycle we will have a profound redistribution of global income in which companies and people with debt balances will lose, while those with credit balances will be left with a net gain.
There will be a profound change in income, the magnitude of which we cannot yet sufficiently consider.
